1. What is the effect on localization in the Hotelling linear city with price competition if transportation costs are linear or concave (they increase with distance but at a constant or decreasing rate)?
2. Von Hohenbalken and West (1986) argue that for the period 1968 to 1982 the data are not consistent with Safeway engaging in preemption. They reach this conclusion by comparing the average market size of all stores with the average market size of Safeway's new stores. They argue that if Safeway is engaging in preemption, then the average market size of a new store should be less than the average market size of all existing supermarkets. Explain why this is true ceteris paribus. Then explain what might have changed over this period to make this simple comparison misleading.